If you’ve followed the economic headlines this spring, you’ve probably felt like a ping-pong ball. Consumer sentiment gauges are skidding to levels last seen in the financial crisis, yet new-home sales just crushed expectations; yet again, existing home sales were weak. Regional Fed surveys are signaling a slowdown, but the national PMI still remains in expansion territory. How can both stories be true—and which one deserves the benefit of the doubt when making investment or business decisions?
First, a quick primer. Economists lump indicators into two buckets. Hard data are the stamped-in-ink numbers—payrolls added, widgets produced, dollars spent at retail—that show what actually happened. Soft data captures what people say they feel or plan to do, typically through surveys conducted among businesses or households. The University of Michigan consumer sentiment report, the S&P Global purchasing managers’ indices, and the Fed’s Beige Book (click here) fall into this softer camp. Hard data are backward-looking but concrete; soft data are more subjective but tend to evolve first. As one might imagine, soft data can move more quickly and, at times, has a leading quality.
That leading quality makes soft data invaluable, but it also leaves them vulnerable to policy noise, and tariff talk has been an air horn in the background all year. The April Beige Book logged record-high mentions of “uncertainty,” “tariffs,” and “policy” (see charts below), with several districts reporting that firms are postponing hiring and capex until they know where the dust settles. In addition, private-sector surveys of regional Fed manufacturing indices have rolled over, and service firms say new-business pipelines are thinning. Yet, in the same data dump, the national S&P Global factory PMI rose to 50.7, while services cooled but remained above the 50-line, separating growth from contraction.
Meanwhile, the hard numbers are also offering mixed signals. March new-home sales jumped 7.4 percent month-over-month, handily beating the 1.3 percent consensus. Payroll growth is still running north of 150,000 a month, weekly unemployment data remains consistent, and retail sales volumes, while choppy, have yet to show the decline you’d expect if consumers acted as miserable as they claim to feel. Conversely, this week’s existing homes report showed sales slowing the most in two years, and housing starts near 3-year lows.
So, what do we trust? The cop-out answer is “both,” but there’s some practical nuance:
- Soft data are excellent trip-wires. Confidence and PMI series usually peak or trough before hard data confirms the turn. If multiple soft gauges rollover together, the odds increase that hard indicators will weaken in the next quarter or two. Ignoring soft data because “it’s just sentiment” can leave you flat-footed.
- Policy shocks distort timing. The current divergence is wider than usual because firms and households are reacting to tariff headlines before those levies fully hit supply chains. That front-loading shows up as importers’ hurried shipments ahead of duty hikes.
- Look inside the soft numbers. Beige Book anecdotes, for instance, aren’t universally grim. While retailers fear price-sensitive consumers, auto dealers are enjoying a mini-boom as buyers race to lock in prices before the next tariff tranche. Sentiment is negative on balance, but the mosaic matters.
- Cross-check with market prices. Credit spreads, copper, and cyclical-versus-defensive share performance have softened but not collapsed. Markets seem to believe that the soft-data chill will shave off growth, rather than trigger an immediate recession. That’s consistent with a world where hard data cools through summer rather than falls off a cliff.
From an investment standpoint, while the sky ahead looks darker than it did a quarter ago, does that mean you should dump stocks and hunker down in T-bills? Probably not. If tariff angst curtails due to new trade deals (or discussions about possible deals), we’ve seen how quickly the market will react. Therefore, overreacting (either way) is unlikely to produce the results you’re looking for.
The declines seen in the soft data are significant, but we still need to maintain calm until we receive confirmation from at least one major piece of hard data. Payrolls turning negative, industrial production sliding for several months, or retail sales volumes contracting quarter-over-quarter would all fit that bill. Until then, it will pay to remain nimble, as tariff tweets can shift the mood faster than any indicator, whether hard or soft.
In the end, trusting only what’s etched in stone (hard data) versus trusting only what’s whispered (soft data) will keep you partially in the dark. Keeping both in view—and monitoring how they change over time—won’t eliminate the guesswork, but it will keep you from driving the car blindfolded.
Markets / Economy
- With some positive talk regarding the possible relaxation of Chinese tariffs, markets moved higher for the week. The S&P finished up 4.6%, the Nasdaq was up 6.7%, and the small-cap Russell 2000 was up 4.1%.
- The S&P Global U.S. Manufacturing PMI rose to 50.7 in April from 50.2 in March, beating market expectations of 49.1, according to a preliminary estimate. Although growth was modest, this marked the fourth consecutive month of expansion in manufacturing activity.
- New Home Sales in the U.S. increased 7.4% MoM in March, following an upwardly revised 3.1% rise in February.
- Existing home sales in the U.S. slumped by 5.6% from the previous month to a seasonally adjusted annualized rate of 4.02 million units in March, missing market expectations of 4.13 million to mark the sharpest decline in over two years.
Stocks
- U.S. equities were in positive territory. Technology and Consumer Discretionary were the top performers, while Consumer Staples and Real Estate lagged. Growth stocks outperformed value stocks, and large-cap stocks outperformed small-cap stocks.
- International equities closed higher for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased seven basis points to 4.27% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by corporate bonds and government bonds.
